also offers trade discounts to various groups of buyers. On August 1,
2017, Kimmel sold some accounts receivable on a without recourse
basis. Kimmel incurred a finance charge. Kimmel also has some notes
receivable bearing an appropriate rate of interest. The principal and total
interest are due at maturity. The notes were received on October 1, 2017,
and mature on September 30, 2019. Kimmel’s operating cycle is less
than one year. Using the net method, how should Kimmel account for
the sales discounts at the date of sale? What is the rationale for the
amount recorded as sales under the net method? Using the net method,
what is the effect on Kimmel’s sales revenues and net income when
customers do not take the sales discounts? What is the effect of trade
discounts on sales revenues and accounts receivable? Why? How should
Kimmel account for the accounts receivable factored on August 1, 2017?
Why? How should Kimmel account for the note receivable and the
related interest on December 31, 2017? Why? Problem 7-4 (Part Level
Submission) (2 parts) From inception of operations to December 31,
2017, Vaughn Corporation provided for uncollectible accounts
receivable under the allowance method. The provisions are recorded,
based on analyses of customers with different risk characteristics. Bad
debts written off were charged to the allowance account; recoveries of
bad debts previously written off were credited to the allowance account,
and no year-end adjustments to the allowance account were made.
Vaughn’s usual credit terms are net 30 days. The balance in Allowance
for Doubtful Accounts was $147,500 at January 1, 2017. During 2017,
credit sales totaled $9,175,300, the provision for doubtful accounts was
determined to be $183,506, $91,753 of bad debts were written off, and
recoveries of accounts previously written off amounted to $19,230.
Vaughn installed a computer system in November 2017, and an aging of
accounts receivable was prepared for the first time as of December 31,
2017. A summary of the aging is as follows. Based on the review of
collectibility of the account balances in the ―prior to 1/1/17‖ aging
category, additional receivables totaling $63,700 were written off as of
December 31, 2017. The 81% uncollectible estimate applies to the
remaining $97,700 in the category. Effective with the year ended
December 31, 2017, Vaughn adopted a different method for estimating